Helping Teens Navigate the Financial Waters
- Tuesday, December 16, 2008
[Editor's Note: The following article is adapted from Chiseled: A Young Man's Guide to Shaping Character, True Toughness and a Life That Matters, Regal Books, 2008]
How do you develop a wise, skillful approach to finances? It’s not as confusing as it often seems. Basically there are six main areas about money to study and learn about. Keep these six areas in balance, and your finances will fall into place. Here are the basics:
By itself, money is just a blip on a computer screen or a wad of green paper. Money only becomes worthwhile when it can be exchanged for something.
What is of value to you? Education? Transportation? Necessities such as food and clothing? Helping other people? It’s okay to make and spend money. The love of money is wrong, but money in and of itself isn’t wrong. Money is just a tool. No more, no less.
The key with spending--and this can’t be screamed loudly enough--is to spend less than you earn. It’s so simple that it sounds so basic to say it, but you’d be surprised how few people do it.
Budgeting means that you allocate money for certain things. You decide how to spend the money you have, rather than let stuff or impulses decide for you. Budgeting is the key that much of financial balance hinges on. It doesn’t matter what type of budget you develop. What’s important is that you know what’s coming in and where it’s going.
Here’s one way, called the envelope method. It’s an easy, practical and hands-on approach to budgeting.
a. Estimate how much money you’ll need for each group of expenses each month. Make up whatever categories are true to your life. It might be: gasoline, car repairs, food, entertainment, clothes, insurance, rent, etc. You might need to track your expenses for a month or two and tweak the amounts accordingly.
b. Get a box of envelopes and write the name of each of your spending categories on an envelope—each category on a separate envelope.
c. Get your paycheck, cash it, and put in each envelope the amount of cash you’ve previously decided goes into that envelope. When you need money for an item, pull out the envelope from that category and spend away. If there’s no money in that envelope, then don’t spend.
Saving is different from investing. Savings are used for several things: accumulating funds so you don’t have to buy things on credit; emergencies, such as your car overheating, and;
a rainy day fund for things you haven’t quite figured out yet what they’re going to be, but you just know you’re going to need to buy them in the future, like Christmas gifts each December or a plane ticket home each spring.
What’s the key with savings? It comes back to your budget. Decide your goals, then allocate a certain amount per month toward those goals.
Investing means that you put aside money and expect to see a profit over time. There is no one way of investing. You can buy a house with the idea that it will go up in value, or a stack of rare coins, or a group of mutual funds. The point is that you educate yourself about various types of investing, then do it.
Typically, two great long-term investments are these: home ownership and stock market investments, although both have suffered hits recently. Conventional wisdom holds that both will bounce back in time. Allocate the bulk of your money toward things that don’t depreciate in value. That’s investing.
Today, you pretty much need credit. It’s almost impossible to buy a house without it. And it’s almost impossible to buy a car without it.
To get credit, you need to develop it, and this is where a lot of people get into trouble, because the easiest way of developing credit is to get a credit card (or at the very least a gas card) or a small consumer loan from a bank. People get into trouble because they don’t pay their loans back, or they pay them back late or only pay their minimal balance on credit cards. The rule is this: If you get a loan, absolutely pay it back in the time you agreed to. And if you get a credit card, absolutely always pay your monthly balance in full. Never just pay the minimum balance. You’ll get hosed in sky-high interest payments.
Your three-numbered credit score is developed and shaped every time you open a bank account, apply for a credit card or car loan, pay bills or don’t pay bills, change addresses and lots more. It’s the history of how you use money. In America, your score is primarily based on information given to and received from three major credit bureaus called Experian, Transunion and Equifax. Lenders, employers and landlords typically supply the information to the bureaus. By law, you’re entitled to check your credit score once a year for free.
Last, but certainly not least, is tithing. Tithing is when you set aside some of your resources on a regular basis to give specifically to God.
Here are some of principles for tithing as set out in Scripture:
Deuteronomy 8:10-20 lays the foundation for giving to God. It’s all about remembering what the Lord has given you. It’s about wanting to be part of His plan and purposes. It’s about using your money wisely, for things that matter.
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